Legal cannabis is one of the few industries that continued to grow in 2020 despite the economic collapse triggered by COVID-19.
Denver is thriving and one of the strongest markets in the U.S. A new report from the City of Denver shows that cannabis sales hit a record $715 million in 2020, up 21% from record sales in 2019. That created tax revenue of $70 million for the city of Denver – a windfall for local politicians.
Denver’s thriving market is part of a larger trend. Cannabis sales in Colorado have been booming for years and hit a new all-time high of more than $2 billion in 2020.
Looking forward, Colorado cannabis sales should continue to grow for many years as more dispensaries come online and more consumers gain access to the market.
Investors who want to play this trend may be confused. Despite the size of the Colorado cannabis market, the three of the largest U.S. cannabis companies, Cresco Labs (CRLBF), Curaleaf Holdings (CURLF) and Green Thumb Industries (GTBIF) have virtually no presence in the state.
Stock to Play Colorado’s Hot Market
For investors who want to play the trend in Colorado, I am going to reveal a little-known cannabis stock that is an early market leader.
- This company is one of the largest cannabis companies in the state.
- The team reported revenue growth of 476% in the last 12 months.
- Shares are deeply undervalued relative to the company’s peers.
Schwazze (OTC: SHWZ) (formerly known as Medicine Man Technologies, Inc.) is cashing in on the cannabis boom happening in Colorado. Headquartered in Denver with a market cap of $85 million, Schwazze is one of the largest players in this high-growth area. The company currently owns 19 retail dispensaries in the Denver and Southern Colorado regions. Schwazze also owns a cultivation facility and a manufacturing facility in Colorado.
Recent second-quarter results showed Schwazze’s incredible sales growth in the last 12 months.
- Revenues of $30.7 million grew 467% over Q2 2020 and 58.9% over Q1 2021
- Net Income was $4.4 million or $0.08 Diluted Earnings per share compared to a Net Loss in Q2 2020 of ($6.6) million or ($0.16) Diluted Net Loss per share and compared to a Net Loss in Q1 2021 of ($3.6) million or ($0.09) Diluted Net Loss per share
Looking forward there should be plenty more gas in the tank for Schwazze. The company continues to invest millions into expanding its footprint in Colorado. Here are some more details on two of its most recent acquisitions.
Acquisition of Southern Colorado Growers: The Company announced on June 1, 2021, that it had entered into a transaction to acquire the assets of Southern Colorado Growers in Huerfano County, Colorado (transaction closed July 22, 2021). The acquisition includes 36 acres of land with outdoor cultivation capacity, as well as indoor, greenhouse, and hoop house cultivation facilities and equipment. This purchase expanded Schwazze’s footprint in Colorado, is the Company’s first major move into cultivation, and will provide high-end, premium cannabis directly to its Star Buds dispensaries as well as significant production of biomass for its PurpleBee’s extraction and manufacturing facility.
Acquisition of Drift Dispensaries: The Company announced that it had signed definitive documents to acquire the assets of BG3 Investments, LLC dba Drift which consists of two marijuana retail stores located in Boulder, Colorado, bringing the total number of Schwazze Colorado dispensaries to nineteen.
Looking forward, Schwazze is projecting solid revenue growth in 2021. The company expects to produce revenue between $110 and $125 million this year.
Despite this impressive sales growth, Schwazze is undervalued relative to its peers. Schwazze has a price-to-sales ratio of just less than 1 based on the 2021 projection. By comparison, Curaleaf Holdings has a p/s ratio of 7. We are bullish on Curaleaf, but Schwazze shares offer better value.
Schwazze Shares are Down 50% from the 52-Week High
Shares of Schwazze have traded in line with the broader cannabis sector in 2021.
Schwazze’s shares were red hot in January, hitting a new all-time high. However, shares have been on a downward trend for most of the last eight months. As it stands, shares are down about 50% from the 52-week high. Take a look at the 2021 chart below.
The Big Picture
The Colorado legal cannabis market is booming, with sales topping $2 billion in 2020.
Investors looking to cash in on this hot local market should check out Schwazze. This company is an industry leader in Colorado and projecting strong sales growth this year. As a bonus, the share price is undervalued relative to its larger peers.
Author Michael Vodicka owns shares of Cresco Labs, Curaleaf Holdings, and Green Thumb Industries.
About the Author
Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.